A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal examines the case for alternatives to central banking and the reforms needed to move toward free-market money.

The more widespread use of body cameras will make it easier for the American public to better understand how police officers do their jobs and under what circumstances they feel that it is necessary to resort to deadly force.

Americans are finally enjoying an improving economy after years of recession and slow growth. The unemployment rate is dropping, the economy is expanding, and public confidence is rising. Surely our economic crisis is behind us. Or is it? In Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato scholar Michael D. Tanner examines the growing national debt and its dire implications for our future and explains why a looming financial meltdown may be far worse than anyone expects.

The Cato Institute has released its 2014 Annual Report, which documents a dynamic year of growth and productivity. “Libertarianism is not just a framework for utopia,” Cato’s David Boaz writes in his book, The Libertarian Mind. “It is the indispensable framework for the future.” And as the new report demonstrates, the Cato Institute, thanks largely to the generosity of our Sponsors, is leading the charge to apply this framework across the policy spectrum.

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The bad habit of defining “tax reform” in terms of fairness or “closing loopholes” sidesteps the most essential task of effective tax policy – namely, to collect taxes in ways that do the least possible damage to incentives for productive effort, investment and entrepreneurship.

The Joint Committee on Taxation list of “tax expenditures” is arbitrary accounting, not economics, and tax expenditures are not necessarily “loopholes.” These estimates do not take taxpayer behavior into account and therefore do not estimate revenues that could be raised by closing the so-called loopholes (e.g., a higher tax on capital gains would shrink asset sales and revenues). Policies that make sense in terms of economic incentives can therefore be portrayed as useless tax subsidies in the purely static accounting of “tax expenditures.”

For example, a recent New York Times article by former vice presidential adviser Jared Bernstein complains that tax deferral for retirement savings is unfair because, “most savings subsidies go to households that would surely save anyway, while almost nothing goes to the households that need help to save.”

These “subsidies” for high-bracket taxpayers mainly consist of deferring rather than avoiding taxes, which only partly offsets the way savings are double-taxed. Even if higher-income households would actually save the same without 401(k) accounts (which contradicts research), they would still end up with much smaller retirement savings. Dividends and capital gains would then be repeatedly taxed, year after year, rather than being continually reinvested within a tax-deferred pension, IRA or 401(k) account.

Estimated “subsidies” from tax deferral are deceptive: Instead of having recent dividends and capital gains taxed at a 15-20 percent rate in recent years, distributions from tax-deferred accounts will later be taxed at rates up to 39.6 percent. It’s a subsidy only if you don’t live much past 70.

Bernstein presents a graph showing the top 20 percent getting a 66 percent share of these “subsidies” for pensions and defined-contribution plans while the middle fifth gets only nine percent and the poorest 20 percent just two percent. What these figures actually demonstrate is that (1) people who work full-time for many years have more income to save than those who don’t, and that (2) people who pay no income tax cannot benefit from any policy that reduces taxable income, even temporarily.

There are five times as many workers in the top 20 percent than there are in the bottom 20 percent. To exclude young singles and old retirees, Gerald Mayer examined the work experience of households headed by someone between the working ages of 22 and 62. Average work hours among the poorest 20 percent still amounted to just 1,415 hours a year in 2010, while those in the middle fifth worked 2,771 hours, and the top 20 percent worked 4060 hours.

If Bernstein’s “subsidies” were properly expressed as shares of income, rather than as shares of foregone tax revenue, the differences nearly vanish. The Congressional Budget Office (the undisclosed source of his estimates) shows tax benefits for retirement savings worth only about twice as much to the top 20 percent (2 percent of net income) as to the middle 20 percent (0.9 percent of income). Retirement savings incentives appear to be worth only 0.4 percent of income to the poorest 20 percent, since they rarely owe taxes, yet annual benefits are a poor guide to lifetime benefits. Those in low income groups while they are young commonly move up to higher tax brackets by the time they start saving for retirement.

The alleged unfairness of lower-income households not getting the same dollar tax break as couples earning more than $115,100 (the top 20 percent) could be alleviated by reducing marginal tax rates on two-earner families. But Bernstein instead suggests “closing loopholes that make it easy for wealthy individuals to exceed contribution limits to tax-preferred accounts (as was found to be the case with Mitt Romney), reducing contribution limits for high-income filers, or simple limiting the value of tax breaks for the wealthiest of filers (e.g. allowing them to deduct such contributions at 28 percent instead of 39.6 percent.” None of these schemes would add a dime to the savings of low or middle-income households, of course, and they wouldn’t work.

It is not legal – and therefore not “easy”– to exceed strict contribution limits for high-income taxpayers, and Mitt Romney certainly did not do so. What Romney did was to roll over qualified retirement plans into an IRA and then earn high compounded returns on very successful investments. Similarly, albeit on a much smaller scale, I rolled-over a lump-sum pension into an IRA in 1990 when I changed jobs, and that IRA is now 12-times larger thanks to compound interest and bold investments. Since I never contributed another dollar after 1990, tougher or lower contribution limits would have been entirely irrelevant.

Bernstein’s final proposal is from the Obama budget – “allowing taxpayers to deduct contributions at 28 percent instead of 38.6 percent.” But that too is irrelevant. Any alleged “loopholes” for retirement savings have nothing to do with itemized deductions for top-bracket taxpayers, who are not allowed to deduct contributions to an IRA. Failure to include employer contributions as taxable income is not an itemized deduction to begin with, nor is the exclusion from adjusted gross income for contributions to a Keogh retirement plan for the self-employed.

In the process of giving “tax reform” a bad name, Jared Bernstein uses a sham fairness argument to justify arbitrary and unworkable anti-affluence policies that are irrelevant to any ill-defined problems.

Item: The Coalition for a Realistic Foreign Policy, a group of concerned scholars and authors who work on international security and U.S. foreign policy, have issued an open letter to President Obama warning him not to expand U.S. involvement in that country. (Full disclosure: I was a signatory.) The list of signatories includes many of the scholars who urged President Bush not to invade Iraq. Politico was the first to run the story: see here.

Among the many parallels being offered between Afghanistan and the Vietnam War, one of the most disturbing concerns inadequate examination of core assumptions. The Johnson administration was just as meticulous as the Obama administration is being in examining counterinsurgent strategies and the forces required to execute them. But most American discourse about Vietnam in the early and mid-1960s took for granted the key – and flawed – assumptions underlying the whole effort: that a loss of Vietnam would mean that other Asian countries would fall like dominoes to communism, and that a retreat from the commitment to Vietnam would gravely harm U.S. credibility.

The Obama administration and other participants in the debate about expanding the counterinsurgency effort in Afghanistan can still avoid comparable error. But this would require not merely invoking Sept. 11 and taking for granted that a haven in Afghanistan would mean the difference between repeating and not repeating that horror. It would instead mean presenting a convincing case about how such a haven would significantly increase the terrorist danger to the United States. That case has not yet been made.

Item: Michael Crowley offers a piece in the New Republic that strongly implies but doesn’t quite come out and say that President Obama should ignore the skeptics and the political risks and wade deeper into Afghanistan. The piece swallows whole the conventional wisdom narrative on Iraq–that the Surge amounted not to a combination of defining down “victory” and appeasement of Sunni tribes but rather a borderline miracle whereby Gen. Petraeus loosed his wonder-working COIN doctrine on the maelstrom of violence in that country and produced a strategic victory. Crowley then uses this narrative to frame the decision before President Obama. Still, he writes

[I]f the definition of success isn’t clear to the Obama team, the definition of defeat may be. Bush argued unabashedly that Iraq had become “the central front in the war on terror” and that withdrawing before the country had stabilized would hand Al Qaeda not only a strategic but a moral victory. Current administration officials don’t publicly articulate the same rationale when discussing Afghanistan. But former CIA official Bruce Riedel, a regional expert who led the White House’s Afghanistan-Pakistan review earlier this year, cited it at the Brookings panel held in August. “The triumph of jihadism or the jihadism of Al Qaeda and the Taliban in driving NATO out of Afghanistan would resonate throughout the Islamic World. This would be a victory on par with the destruction of the Soviet Union in the 1990s,” Riedel said. “[T]he stakes are enormous.”

Obama may have one last thing in common with Bush: personal pride. Bush was determined to prevail in Iraq because he had invaded it. And, while Obama, of course, had nothing to do with the invasion of Afghanistan, he has long supported the campaign there–including during the presidential campaign as a foil for his opposition to the Iraq war. Speaking before a group of veterans last month, Obama called Afghanistan a “war of necessity”–a phrase which politically invests him deeper in the fight. “The president has boxed himself in,” says one person who has advised the administration on military strategy. “The worst possible place to be is that our justification for being in a war is that we’re in a war.”

Over at The Corner, Rich Lowry put up a post on detainee interrogations that I responded to. Follow-up posts are available here and here.

Jay Nordlinger steps in to offer the view that, with terrorists, the difference between a “schlub” and a “monster” isn’t much. A pathetic radical can cause a lot of damage with just a little bit of luck.

This may be true, but there is a valuable ends-means calculation that must be considered (also addressed in Julian Sanchez’s post here).

How many times must we use coercive interrogation and get nothing, suffering the inevitable backlash in public opinion and enemy recruiting, for each intelligence success? If you are willing to torture a dozen/hundred/thousand men for each schlub, you will motivate a sufficient number of monsters to make a small tactical victory a pyrrhic one at best, and a strategic debacle at worst.

The big picture trends against torture, or any use of force that crosses the line between mutual combat and violating human rights, or the use of indiscriminate force. The attack on September 11, 2001 crossed that line, and we justifiably responded with military action. The use of “enhanced interrogation techniques” (EIT’s) crossed that line, and the enemy used it as propaganda fodder.

The British faced a parallel situation in Northern Ireland in 1971. After employing mass arrests that stoked the fires behind the IRA, the Brits employed “special interrogation techniques.” Former FBI Special Agent and successful terrorist group infiltrator Mike German covers this in his book, Thinking Like a Terrorist (citing Armed Struggle: The History of the IRA):

Among the methods used on the internees were the “five techniques”: placing a hood over the head; forcing the internee to stand spreadeagled against a wall for long periods; denying regular sleep patterns; providing irregular and limited food and water; and subjecting people to white noise in the form of a constant humming sound.

Sound familiar? Violence in Northern Ireland increased as a result of these practices. The Brits crossed the line again on Bloody Sunday when they fired into a crowd of peaceful protestors (possibly a response to IRA gunfire at British paratroopers). The tide shifted in favor of the IRA until they broke the unwritten rules of the game on Bloody Friday, detonating twenty-two bombs in Belfast that killed nine people. Tactically masterful, but a political disaster.

The Bush administration changed tactics in its second term in office, discarding EIT’s and moving away from physical coercion of detainees. This was a sensible decision, and there is no reason for the Obama administration to change course.